Things to Do Before You Close Your Loan Account

Introduction

Applying for a loan, discussing loan terms, submitting documents, paying EMIs before deadlines and then finally doing the full repayment – it’s a journey in itself. And often, having been through this long and tedious process, debtors rejoice at having paid the loan without realizing that there is still more to be done. And that is - closure of your loan account. There are a few important certificates and documents that you need to get from the lender for the sake of a proper closure of your loan account. If you don't fulfill these formalities, they may create problems in future.    

Things to keep in mind before closing loan account

1. Getting the No Dues Certificate (NDC) or Non-Objection Certificate (NOC):

The closure letter or No Dues Certificate (NDC) is an authentic statement that verifies that you have closed your loan account and are not liable to make any further payments to the lender . It is vital that you collect this from the lender as it will act as evidence in case of any future disputes or disagreements especially when you decide to sell the asset or apply for another loan.

1. Take the statement of accounts:

Zero is an important figure here and you must get a Loan Account Statement of your entire loan account which shows the closing balance as zilch. This also serves as a proof that all the EMIs have been paid on time.

1. Collect all submitted original documents:

For home loans, car loans and any kind of secured loans, an asset is treated as collateral. At the time of documentation, the borrower submits the original documents of the asset to the lender and he/she must take it back, every page intact, after the loan is fully paid. That’s why it is also suggested that one should keep a record of original documents being submitted during the documentation phase and tally them with the documents received back from the lender after the loan repayment. Don’t sign the acknowledgement form till all the original documents have been obtained.

1. Open any collateral security:

This refers to any other asset put on the line as a guarantee during the process of approval. Just recall if you have provided any other asset - a life insurance policy or a fixed deposit, or National Savings Certificate - to the lender as ‘collateral security’. If yes, get the lien lifted while you close the loan account. You must also visit the registrar office (in case of home loans) and the Regional Transport Office (in case of vehicle loan) and make sure that the lien/ hypothecation on your asset has been removed. Also, approach the insurance companies in case the lender had insured the asset and get it registered on your name. Switch to another insurance company during the renewal time if you are getting better offers.  

1. Retrieve security cheques:

Lenders, as a safety measure, ask for a few security cheques in case you make delays in EMI payments. Make sure you get these back to avoid any misuse or fraudulent activity, once you have paid all the installments.

1. Ensure that credit bureaus has been informed of the closure:

Now, when all is done, the credit bureaus must know what a disciplined debtor you have been and thus, they must get a report of your loan settlement. Get a copy of your credit score about a month after retrieving all important documents and check if your credit report reflects the closing of your loan. If it does not, get it resolved immediately. You can either request the lender to inform the credit bureaus or you can yourself get it done by submitting the requisite documents to the bureau. Once your credit record is updated with your closed loan account, it will strengthen your credit score. And as you know, a healthy credit score means a quicker and hassle-free loan approval, and that too with a better rate of interest.

There is a common saying in cricket – it’s not over till it’s over which means that game is not won until you have won it for sure. Same is the case with loan repayments. Until you procure all the necessary documents that state that you have fully repaid your loan and the credit bureaus have been informed about your record, don’t celebrate, not just yet!